PPI Rises Overall But Drops For Construction

The producer price index (PPI) for finished goods climbed 0.6% in
April, seasonally adjusted, but fell 3.7% since April 2008, the Bureau of Labor
Statistics (BLS) reported on May 14. The PPI for inputs to construction industries,
a weighted average of PPIs for materials used in every type of construction,
slid 0.4% and 3.7%. The PPIs for
construction segments all fell: highway and street construction, -0.2% and
-9.1%; other heavy construction, -0.3% and -8.2%; nonresidential buildings,
-0.2% and -4.3%; multi-unit residential, -0.3% and -2.2%; and single-unit,
-0.6% for the month but up 0.4% for the year.

PPIs for two inputs jumped for the month but tumbled for the year: diesel fuel, 20.5%
and -56%; and copper and brass mill shapes, 19.5% and -25%. Several materials
fell in April but still cost more than a year ago: gypsum products, -0.2% and
5.1%; concrete products, -0.3% and 2.8%; plastic construction products, -0.5% and
2.8%; and construction machinery and equipment, -0.5% and 4.4%.

Items
that dropped over both periods included steel mill products, -6.9% and -25%,
and aluminum mill shapes, -0.7% and -25%. BLS also reported small declines for
the month but 12-month increases for PPIs
for finished new nonresidential buildings and subcontractor types:
industrial, -1.0% and 7.1%; warehouses, -0.6% and 6.1%; schools, -0.1% and
11.5%; offices, -0.8% and 6.1%; concrete contractors, 0 and 4.4%; roofing,
-0.1% and 12.3%; electrical, -1.5% and 3.3%; and plumbing, -0.3% and 8.5%.
These indexes are meant to reflect labor and overhead as well as materials.
However, they are based on contractors’ estimates for hypothetical projects,
not actual bids submitted in a competitive setting. Many public agencies and
contractors report those bids have dropped sharply from last summer as general
and subcontractors sacrifice profits to win bids.

The consumer price index (CPI) for all
urban consumers edged up 0.2% in April, seasonally adjusted, but fell 0.7% over
12 months, BLS reported on April 15. The CPI for urban wage earners and clerical
workers (CPI-W), used to adjust wages in many union contracts in
construction and other industries, fell 1.3% over 12 months.

The value of
new construction starts fell 1% in April, seasonally adjusted, McGraw-Hill
Construction (MHC) reported on Wednesday, based on data it compiled. For the
first four months of 2009 combined, starts plunged 39% year-to-date (YTD)
compared to the same span of 2008. Nonbuilding
construction in April dropped 19%, following a 28% jump in March, and was
down 20% YTD. Nonresidential building grew
9% for the month but tumbled 42% YTD.

“The manufacturing
category provided much of the upward push, surging 222%, due to the start of a
$1 billion upgrade to a centrifuge plant (for uranium enrichment) in Ohio.
Excluding this large project, the manufacturing building category in April
would be down 7% while the increase for nonresidential building would be
lowered to 1%. There was…a 49% increase for healthcare facilities, pushed
upward by four large hospital projects…The public building category in April
advanced 19%.”

There were declines in April for stores,
-10%; warehouses, -20%; and offices, -22%. Hotel starts rose 8% but “still came
in 68% below the average monthly pace for this category in 2008….Residential building in April climbed
8% [but was off 50% YTD,] the result of a 13% gain for single-family housing,
which posted its second increase out of the past three months. [Multifamily]
contracting dropped an additional 11%.”

Consistent with the MHC report on the value of
residential starts, the number of housing
units started in April fell 13%, seasonally adjusted, and 54%
year-over-year (YOY), to a record low for the 50-year-old series, the Census
Bureau reported on Tuesday. Multifamily starts accounted for the entire
decline, falling 54% and 72%. Single-family starts rose 2.8% for the month but
fell 46% YOY. Building permits, a
reliable indicator of near-term future starts, fell 3.3% and 50% overall, with
multifamily permits down 20% and 65%, and single-family up 3.6% for the month
but down 42% YOY.

Another indicator of future construction, the Architecture Billings Index, slipped
one point in April to 43, below the breakeven 50 level, the American Institute
of Architects reported on Wednesday. The index measures the percentage of
responding architecture firms that reported a rise in billings from the month
before, less the share that reported a drop. All four practice
segments-residential, commercial/industrial, institutional and mixed-reported
similar levels.

Credit markets are mixed. State and local
fiscal experts speaking at a National Tax Association panel today agreed that
credit access has improved from last fall but rates are higher, and capital
budgets are being stretched out or cut even more deeply than other spending. An
increasing number of respondents to Data DIGest “Questions of the Week”
have reported an improvement in the state
and local bond market. But none said commercial
lending has improved. A major problem has been the collapse of the commercial mortgage-backed securities (CMBS)
market:

“The $700 billion market for bonds backed by
commercial mortgages rallied Tuesday, following the Federal Reserve’s
announcement that it would expand one of its funding programs [known by the
acronym TALF] to include such existing securities-as opposed to newly issued
ones-in its latest move to jump-start commercial real-estate lending,” starting
in July, the Wall Street Journal reported on Wednesday.
“The CMBS market has been rallying since mid-March on hopes that TALF would
restart the market.” On Tuesday, the paper reported, “Big companies are rushing
to issue stocks and bonds to suddenly hungry investors. But credit is still
scarce for thousands of mostly smaller companies that rely on bank lending.”

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